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Tripartite lease extension - Mgmt Co not included

12-06-2019, 11:41 AM

Hi everyone

This question falls between "Leasehold" and "Conveyancing" topics but this feels like the more natural place for it.

I am four months into the conveyancing on a flat. The original lease was tripartite (Landlord, Mgmt co, Lessee), with three separate schedules in the lease setting out the covenants of each party. Maintenance of the common areas and service charge collection etc were all clearly set out in the Mgmt co's schedule of covenants.

Prior to putting the flat on the market, the vendor arranged extension of the lease on this flat and several others that he owned, all under the same terms. This extended the lease to 999 years and extinguished the ground rent - great!

BUT - my solicitor has flagged that the lease extension (which is a deed of lease and surrender) fails to join in the (still very much active) management company, and is only between the landlord and the lessee. Effectively in surrendering the old lease she advises that the management company covenants have been lost and there is now no means of enforcing/guaranteeing any maintenance of the buildings.

The new lease has not yet been registered by the Land Registry. My solicitor has repeatedly asked for the lease application to be withdrawn, and to be amended to bring in the management company and reconfirm their covenants under the original lease. However the two solicitors that dealt with the lease extension (on behalf of the freeholder and my vendor) both insist that there is no problem with the management company not being included, as it's not necessary, and will not withdraw the registration. The freeholders solicitor also says that if we are so concerned, I can enter into a deed of covenant with the management company.

My solicitor is not at all happy with this suggestion and says it is messy, the management company would be likely to charge for the DoC, and is under no obligation to enter into one. This would then be a recurring problem/cost every time the flat is sold on. She says she cannot advise me to go ahead with the purchase as things stand.

The sellers conveyancer (who is separate to the solicitors who did the lease extension) has so far remained silent on this issue (simply passing on emails from the solicitors involved with the lease), and also - the seller's three other flats with the same lease extension have sold in the last 6 months without the other conveyancers picking up this issue, which weakens my position with insisting that this is a problem that needs to be solved.

I really don't want to lose this flat (there is nothing else currently available in this price bracket, and I've already committed significant cost and time to the process), and I completely follow and accept my solicitor's argument. But is there anything out there that definitively sets out how a tripartite lease should be extended that I can put to the vendor to support this and refute the assertion of the other solicitors that "everything is fine", and this issue really needs to be sorted out?

Advice or knowledge would be gratefully received, and thank you in advance
Heather

Comment

Service charges are not explicitly mentioned, the only reference in the new lease to amounts payable is the statement "...YIELDING AND PAYING to the Landlord the Annual rent and all other monies payable as rent under the Original Lease".

The original lease, on the other hand, clearly refers to "service charges" and "rent" separately.

Comment

I think that you are right to be concerned and you should heed your solicitor's advice. The management company is entitled to object to the new lease removing its right to collect service charges. It would then be unwilling to incur expenses without the assurance that it could recover 100% of the cost, At some stage it would seek to amend the terms of the lease which would be costly and outside your control.

Comment

Thank you eagle. I have absolute faith in my solicitor and I definitely would not go against her advice - she's the best I've ever dealt with!

She is of the opinion that as the two solicitors involved in the lease extension have "erred" as she politely puts it, they should put it right at their expense. The problem is, neither of them currently accepts that they are wrong and have created a defective lease, and keep asserting that there is no problem. Clearly they have no interest in accepting any responsibility/fault at this stage.

It's reassuring to know that you also agree, I just hope that the vendor will accept that there is a problem and put pressure on the solicitors at fault to fix it. I believe he has held on to some of the other flats he owned so he should still have a vested interest in making sure the leases are watertight.

I was maybe being a bit optimistic in thinking that there would be something out there in black and white that clearly indicates the other solicitors are in the wrong. But if anyone knows of anything I would gladly hear it!

Comment

Thanks for the reply Gordon, unfortunately that isn't something I can do as neither of these solicitors work for me, and I have not completed the purchase of the flat. I'm mainly looking for information to persuade the vendor that the solicitors he has previously instructed are indeed in the wrong and that there is a problem with the lease that they should be putting right.

Comment

Perhaps you can ask your solicitor to consider what would happen if the other leaseholders with new leases refused to pay service charges, Who would be entitled to enforce the debts?

The time to insist on changes is now whilst you are in a position to negotiate. The cost of walking away seems to be nothing compared with the cost of trying to resolve the issues later and the difficulty when you try to sell the property.

A good solicitor who is studying the documents and considering your best interests is priceless. Just don't tell her otherwise the charges may increase

Comment

Too late Eagle, I've already told her how great she is on a few occasions! What is more worrying is the fact that three other conveyancers have failed to spot this problem and put the other sales straight through. But that's probably a whole other topic thread in itself...

I have no intention of buying in to a defective lease, and I will walk away if needs be. Just trying to do everything possible on my part to salvage this purchase before I throw in the towel.

It's a good point about the service charge query, I'm currently waiting to see if the vendor has managed to have any constructive discussions with the solicitors who did the lease extension for him. If they keep pushing back on the concerns raised I'll ask my solicitor to put that query through and see how they respond.

Comment

Where an existing lease is a tripartite lease the third party can be required to enter into the new lease, but not so as to be liable to perform any obligations after the date the existing lease expires. If the third party declines to take on any obligations after the date the existing lease expires the lease must make provision for the third party obligations to be discharged by someone else. See section 57(10) and (11) of the Leasehold Reform, Housing and Urban Development Act 1993.

If it really is the case that the new lease does not make any provision for maintenance whether on the part of the landlord to repair etc or on the part of the tenant to reimburse the cost, the lease is defective and cannot possibly be accepted. Whilst an application can be made to rectify the position, that is not, as the OP says, something a purchaser wants to buy into.

What form does the new lease take? Does it incorporate the terms of the old lease by reference? If it does, the precise wording will tell us whether the maintenance provisions are incorporated and enforceable. Even if they are, the whole thing is very messy as the landlord will be responsible for maintaining some parts of the building and the third party other parts. That alone is enough to walk away.

Comment

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